My Top 5 Investment Basics Books, & why?


(Donald Francis) #1

In this our Information Age, its important toprioritise our reading!

Many friends keep referring me books on Investment & Life they like. And my usual question to them NOW, is can you please summarise for me in 1 or 2 paras, what did you retain as the essence of the book - essentially what did you learn from the book.

Their pointed answers, those who do take the trouble to do just that, always helps me prioritise.

Think it might be a good idea for us ValuePickr members to record brief comments on what exactly we picked up from the investing basics books we have read, which books we benefited the most from and why.

Which are the books we would recommend unhesitatingly to beginner investors, and perhaps in what order?

I am recording my top5 beginner investor books. Please pitch in with your favourites with brief comments, so we can all take quick decisions to enrich our reading lists!Beginner investors will perhaps benefit the most, if we do a good job of this, but am sure all of us will be the richer for it.

1.Five Rules for Successful Investing, Pat Dorsey

I wish this book was the first on my reading list. If you want a practical do-it-yourself, step by step tutorial on how to analyse/research a stock in-depth, this is a no contest, hands down winner! My learning curve shot up tremendously after I read this book. By following Pat Dorsey’s framework and applying it diligently (took me a month) I came up with thisOpto Circuits Stock Research

Earlier my investment arguments could not/did not hold the attention of seniors. They would usually pick this or the other hole. That’s because I lacked a holistic framework. Suddenly I was talking to them at their level; could hold a meaningful discussion. A big jump for me!

2008: Recommended by Subhankar Ghose, Kolkata; remain eternally grateful

2.Intelligent Investor, Ben Graham

Fascinating first read for me, loved the depth of this book.

Important concepts like “Margin of Safety” and “Mr Market” got driven home. Learnt how to AVOID the usual mistakes!!

2005: I started out with this one and the Peter Lynch book, in tandem.

3.One up on Wall Street, Peter Lynch

This one made investing look so easy. One really didn’t need to be a hot-shot analyst to spot winners!

2005: I learnt that it is very much possible to find success on the street, if we keep our eyes and ears open (where are the crowds). ICICI Bank, HDFC Bank and Amalgamated Beans (Cafe Coffee day parent) interested me, as a complete newcomer like me tried to apply the Lynch principles.Bought and read along with Intelligent Investor.

4.Common Stocks Uncommon Profits, Phil Fischer

Got some insights into how to separate the wheat from the chaff! The novice got really interested in identifying probable multibagger candidates:)

Found it real hard to apply! Nevertheless the book is a fascinating read, and my interest in identifying excellent businesses got kindled.

2006: The 3rd book I read. By this time I was making excel spreadsheets, computing ratios on margins, profitability, efficiency, trying to hard-code the theory I was learning:), and spraying around the excel sheets, to anyone who cared to comment!

5.The future for Investors, Jeremy Siegel

Regular Dividend Re-Investment and staying Invested a in consumer-facing branded Pharmaceutical, FMCG and Tobacco companies has proven to be the best Long-Term Investment strategy of all-time, revealed Prof. Jeremy Siegel’s outstanding research for the US market.

My eyes opened to the importance of Dividends, for the first time. The concept that expectations are usually built-in in the stock price, and that my returns depended on the gap between expectations and actual results delivered by the company, got home!

2007: Recommended by Rohit Swaroop, one of my earliest mentors (and the inspiration behind ValuePickr), this is the 4th book I read. I hunted for similar data/study on stock returns by Indian companies, and was delighted by the Motilal Oswal Wealth Creation studies. Not surprisingly, I found similar conclusions - Cipla, Ranbaxy, ITC, HUL, HDFC were among the biggest wealth creators in Indian markets, apart from the IT behemoths.

Current take : As I was penning this down, I realised I have **never attempted a proper re-read **of any of these books. Many seniors tell me they keep re-reading Graham, many others have read Peter Lynch atleast 10 times, that’s how they identified a Jubilant Foodworks, etc.

Not to re-read over time is criminal for a passionate analyst, I guess! So as I attempt a re-read of all these books,I reserve the right to revise any/all of my comments above:). Some perspectives will surely change as I re-read now from more mature (?) eyes.


Investing Basics - Feel free to ask the most basic questions
Investor Profile Series- Knowing the God (Part I)- Warren Edward Buffett
Investing Basics - Feel free to ask the most basic questions
(Administrator) #2

Hi, Thank you for the list, yes in this sea of information ones choice matters. I have already placed order for the first book thru flipkart. Regards Vinod


(SANDEEP SOMANI) #3

Donald,

Human emotion plays an important part in stock markets. Hence, I would recommend “Value Investing and Behavioral Finance” by Parag Parikh. This book is inspired by the “Beyond Greed and Fear” by Hersh Shefrin but has been modified to suit the Indian markets and has examples from Indian Stock markets.


(Arun S) #4

Hi Donald,

Good post. I have read all the books except the 1st and the last and fully agree with your views. They are must read for all value investors. I will try to read the remaining two.

I have also found the following books very valuable

1). The Dhando Investor by Mohnish Pabrai - A simple to read book reinforcing lot of Value investing concepts with examples.

2.Security Analysis by Graham - A very good book to read after reading all the basic books. A bit difficult to follow if you don’t have some background. But worth it.

3.Interpretation of Financial Statements by Graham - A basic book on accounting. Good read if you don’t have much background in accounting.

4). Margin of Safety by Seth Klarman

5). The Little Book That beats the Markets by Joel Greenblatt - Interesting idea. Worth a read.

It will be good if you can post list of other value investing resources(websites,articles etc) also. My favorite is http://www.bengrahaminvesting.ca/Resources/videos.htm which has videos of many value investors talking about value investing.

Regards,

Arun


(Hitesh Patel) #5

I have read quite a few books on investing, listing them below

1). One Up On Wall Street by Peter Lynch – I consider this one to be the Bhagwadgita of investment for lay investors who do not have too much background in analysing stocks in detail. What I have found fascinating in this book is that most of the situations and examples which Lynch puts forward in the book almost always play out in the markets. I can find a lot of parallels in the examples put in the book and opportunities put up in the book.

I think it is one of the best books in developing the art part of stockpicking. I find it very interesting and have read it almost 10-12 times and would like to read it again and again.

2). Margin of Safety by Seth Klarman

This is a very good textbook like book which harps a lot on the aim of investing being conservative and aims at reducing the risks in investing.

3). Intelligent Investor by Graham.

I dont think we need to discuss this one too much. It explains in details how to analyse stocks and decide on their investment worthiness.

4). Dhandho Investor by Mohnish pabrai

this is a book more on opportunistic investment, looking at situational or other opportunities, calculating the risk and betting according to it. and

The Little Book that beats the markets by Joel Greenblatt.

It puts forward a very practical formula of combining return ratio with PE ratio and then deciding on a list of stocks for investment.

5). Reminiscences of a Stock operator by Edwin lefevre.

essentially it is based on the life and investment style of jesse livermore. More like a novel with pearls of wisdom thrown in.

I have just ordered the Pat Dorsey book recommended by Donald and awaiting the delivery of the book.


(Donald Francis) #6

@ Sandeep - Behavioral Finance

Thanks for bringing this aspect upfront. Parag Parikh says, Inability to delay gratification -is one of our human traits - that makes people lose patience.And that is the root cause of failure in equity investing.Investing is all about having the patience to hold on to our convictions. As we all know - creating wealth from equity investing is not purely a number game, it is more of a mind game!

Apart from Parag Parikh’s book which brings in the Indian market context, there is the original Hersh Shefrin, Beyond Greed & fear: Understanding Behavioral Finance & the Psychology of Investing.

Have you read that one too? Anyone? Please capture the essence in 1 or 2 paras for our benefit.


(Donald Francis) #7

@ Arun - Beyond the Basics Reading List

Thanks. Nice compilation on what I would call the Next Reading List. Once I was through with the basics, I was crying out tell me, what should I read next?? Will be nice to have a readily compiled list with reader comments bringing out the essence.

All of these are good follow-through books and deserve to be discussed under a separate thread perhaps. Starting that thread, copying in your comments there.


(Donald Francis) #8

@ Hitesh - The Art side of Stockpicking

Thanks Hitesh. I was waiting to hear from you on why you regard the Peter Lynch book so highly.

As I have understood it, the science side of stock picking (the numbers, ratios, and trends) is mostly about eliminating mistakes, discarding those that are not even worth looking at. It is easier perhaps to develop the science side - one can slog and learn from the books - as fast as one’s passion takes him there. But it is the art side of stockpicking - a sense of what will do well and why - that needs much more time & experience in markets to develop and hone.

Grateful to you for bringing this out succinctly - and now I will re-read the Lynch book with this perspective. Starting a new thread for this.


(SANDEEP SOMANI) #9

I have read the book written by Parag Parikh since it also has examples from Indian market. I have just ordered “Cash the Crash” by Yogesh Chhabaria and will put the essence of both books shortly.


(Donald Francis) #10

Our friendNeeraj Marathe is a self-confessed behavioral finance student since long. He also teaches behavioral finance courses in a few colleges. His comments on behavioral finance books will be good to have. Neeraj -please share your thoughts.


(Radioactive Potato) #11

Hi Donald,

Excellent topic, i must say…my 2 cents on various books can be found herehttp://neerajmarathe.blogspot.com/2010/07/some-good-books-worth-reading.html(i dunno if blog links are banned, but if they are, do delete this post)

On behavioural finance, i would definitely recommend Montier and Ariely…Parag Parikh’s book is a nice light read, but to go into bit more depth of the topic, do take some time out and read Montier…

cheers!

Neeraj


(Abhishek Basumallick) #12

Neeraj, Excellent post … I have read probably all the books in the list excepting Montier’s. Let me read them at the next opportunity…thanks for the great list.

Donald…this is a good topic…thanks for starting…


(Donald Francis) #13

The Psychology of Human Misjudgement

Charlie Munger addresses the importance of recognising patterns to determine how humans behave, both rationally and irrationally. He shares with us his checklist of 24/25 standard cases of humanmisjudgment. he also emphasis the “lollapaloozza” power of psychologicalmisjudgmentsin combination.

The talk features Charlies original concept of “behavioral finance”.

Neeraj - can you throw more light on where to start with - while reading up and trying to understand and recognise the patterns in behavioral finance. Is Charlies above lecture a good starting point, or would you recommend Montiers or some other, first?


(Radioactive Potato) #14

HI Donald,

Starting off with Munger can be a bit unnerving for anybody…his book ‘Poor Charlie’sAlmanac’ has been one of the MOST difficult books for me…

i would suggest that start off with Parag Parekh…its a nice light book…also, a book called Behavioural Finance and Wealth Management by Michael Pompian contains gud basic stuff…

There are blogs too, which contain good articles on the subject…i also write a bit on Behavioural Finance…its nice to read and understand the concepts…

cheers!

Neeraj


(Donald Francis) #15

Hi Neeraj,

Thanks for the pointers. I agree with you.

We have started a thread on demystifying Poor Charlies Almanack. I have been struggling with that book and now trying to get smarter people involved to help us extract how to apply his network of mental models!

-Donald


(Subbu) #16

Hi guys,

Nice thread. Apart from Ben Graham’s book which every value investor must have I can recommend “Essays of Warren Buffett”. I can also recommend The Snowball: Warren Buffett and the business of life, but I must warn you that it is not too finance and investing focused but gives a more general idea of Buffett’s life, his single-minded focus to make money.

cheers,

Subbu


(Rajesh Kumar) #17

The books recommended discussed here are excellent. I have read most of them, except the first recommendation of Donald…Pat Dorsey… I shall be ordering right now. Thanks.

One of the Gem which is missing here is “Stocks for the Long Run” by Jeremy Siegel. It is about examination of various stock selection assumption. When we select any stock, knowingly or unknowingly, we are operating on various assumptions, most of them are untested. This book test many of those assumptions. After reading this book, many of my assumptions are shaken. For example I used to think that as Indian GDP is growing at a fast pace, Indian Stock market is bound to perform well… this book showed that historically stock market has not performed well in many fast growing economies. This book shaked many of my assumptions and forced me to rethink on many such assumptions. In my view it is a must in every investor’s library.


(Girish) #18

These are excellent books mentioned by many people. My list inadditionto all the above would be…

1). Manias, Panics and Crashes By Charles P. Kindleberger. This is history of financial crises over the centuries. Really scholarly analysis of causes and effects of the crisis. it also gives us the typical sequence in which events usually unfold in such manias and subsequent crashes. It also tells us that the events feed into themselves and things go round in cycle indeed. He says the one reason for the crisis is always expansion of credit andthensubsequentcurtailmentwhen panic spreads causing recession/depression etc. Must read if you want to understand why such financial crisis repeat and how to detect these and guard against.

2). Influence By Robert B. Cialdini. Although not an investment book it will tell you how and why you get influenced into something which you would have ideally avoided. Will help you save from IPOs, stock brokers, tips from friends, herd mentality, investing into your company’s stock in the market etc.

3). Damodaran on valuation. I think basic understanding of valuing any asset is a must if you are in a business of trading (buying and then selling) any asset. It will also help the readers demystify notion of intrinsic value that we hear so much in all value investing books.

4). Financial Shenanigans- How to Detect Accounting Gimmicks & Fraud in Financial Reports Third Edition by Howard Schilit. Apropos to what you said above this kind of book may be useful in Indian context where creativity thrives in our businesses…but it is possible that this author has not entirely comprehended the ingenuity of an Indian mind. If any one has comment on certain inadequacy of this book in Indian context then I would like to learn from them.

Another book in the same genre is "Quality of Earnings’ by O’Glove which I am reading now.

5.The Essays Of Warren Buffett - Lessons For Corporate America.Directlyfrom the horse’s mouth. All his wisdom is given here.

6.Against the Gods: The Remarkable Story of Risk ByPeter L. Bernstein. It is ultimate book on risk, probability etc. It gives the history of evolution of probability theory, measurement of risk etc.Risk management, which assumes that future risks can be understood, measured and to some extent predicted, is the focus of this solid, thoroughgoing history. Probability theory, pioneered by 17th-century French mathematicians Blaise Pascal and Pierre de Fermat, has made possible the design of great bridges, electric power utilities and insurance policies. The statistical sampling methods invented by dour Swiss scientist Jacob Bernoulli undergird diverse activities such as the testing of new drugs, stock-picking and wine tasting. Bernstein (Capital Ideas) animates his narrative with a colorful cast of risk-analyzers, including gambling addict Girolamo Cardano, 16th-century Italian physician to the Pope; and John Maynard Keynes, whose concerns over economic uncertainty compelled him to recommend an active, interventionist role for government. Bernstein also traces the development of business forecasting, game theory, insurance and derivatives, and surveys recent advances in risk forecasting made possible through chaos theory and by the development of neural networks. Very high rating for this book on Amazon is fullyjustified.


(Ashish Pandey) #19

Hi,

My list is as follows:

1). Intelligent Investor by Benjamin Graham-- It will give u right temperament and tell u how to “think” about investing.

2). Security Analysis by Benjamin Graham-- It will tell u how to read the financials and analyse what the valuations of company are saying.

3). Poor Charlie’s Alamanack by Charlie Munger-- For mental models

4). Seeking Wisdom by Peter Bevelin-- Munger’s ideas explained.

5). Essays of Warren Buffet-- IT will tell u everything about how to think rationally about investments, business, life, people etc.

Thanks

Ashish


(Hitesh Patel) #20

Having ordered and received the book of Pat Dorsey – Five rules for successful stock investing, I have started reading it and find it very good. I think it seems to complement the Lynch Book One up On wall street. Dorsey book explains how to be more scientific in stock picking whereas the Lynch Book helps in developing the art side of stock picking.

I feel together both books make a great combo pack.

Thanks donald for bringing it to discussion.